What happens to Tesla stock if shareholders reject Musk’s salary

The world is on the verge of finding out whether Tesla shareholders have reapproved a $56 billion compensation package for CEO Elon Musk. And one analyst is now suggesting it won’t pass, causing the stock to fall even further.

Electric vehicle maker’s shareholders reconsider Musk’s 2018 CEO Performance Award, which was approved by more than 70% of shareholders in 2018 and awarded him some 300 million incentive stock options . However, a Delaware judge struck down the compensation plan in January, citing insufficient disclosure to Tesla investors. Tesla’s board of directors put the same package up for another vote with new information.

Most votes will be counted on June 13 at Tesla’s annual shareholder meeting.

On Monday, Toni Sacconaghi, an analyst at Bernstein, wrote that shareholders were unlikely to approve the pay package. He estimates that institutional investors who control 25% of the votes will follow the no-vote recommendation of proxy advisors ISS and Glass Lewis. (In 2018, both also recommended voting against the deal.)

According to his calculations, with 25% voting no, for Musk to get his package, three-quarters of the remaining votes likely to be cast would have to be in favor. This appears to be a reach.

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Sacconaghi predicts shares will fall more than 5% if the final vote is no. He rates Tesla shares at Sell and has a price target of $120.

This might understate this decision. Options markets imply that Tesla shares will move about 7%, up or down, after the vote. Options markets also imply that the decline will likely be greater than the gain.

It makes sense. Aside from Sacconaghi, most analysts believe the vote will likely pass, meaning some optimism is embedded in stocks.

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Technical analysts Frank Cappelleri of CappThesis and Katie Stockton of Fairlead Strategies both point out that Tesla stock is hovering near its 50-day moving average. A move below this price level puts $150 at stake, about $25 lower than recent trades. This level likely represents maximum pain for investors in a no-vote scenario.

One interested party believes getting the salary package approved is not as difficult as Sacconaghi thinks. Musk tweeted Saturday that “about 90%” of retail shareholders voted in favor of his compensation package. This would be significant because about 45% of the shares available for trading that are not owned by Tesla insiders, including Musk, are owned by retail shareholders, according to Bloomberg.

If Musk’s count is correct, only about one in five institutional votes would need to be in his favor for him to get his pay.

It is a question of knowing how the institutional votes will shake out. Calpers and the Norwegian sovereign wealth fund are against the deal, but Baron Capital and ARK Invest are in favor.

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There are shareholders and analysts who are vocal on both sides. Sacconaghi’s prediction for a no vote is countered by Morgan Stanley analyst Adam Jonas, who sees a yes vote. Jonas says customers surveyed expected a yes vote by a ratio of two to one.

Jonas rates Tesla stock a Buy with a price target of $310. Wedbush analyst Dan Ives also has a Buy rating and a $275 price target.

Ives wrote last week that a yes vote was more likely. “This issue has built up an overhang on Tesla stock and it will be important to put this distraction in the rearview mirror.”

Overhang is perhaps an understatement. If the package is rejected, the board will have to find a new way to compensate Musk, and shareholders will have to vote again on the CEO’s compensation. More importantly, Musk’s reaction to a down vote cannot be predicted.

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Before Monday’s session, Tesla stock was down about 29% so far this year, underperforming the

Nasdaq Composite

by about 43 percentage points.

Musk’s compensation isn’t the only thing weighing on investor confidence. Slowing growth in electric vehicle sales has led to lower delivery and profit estimates for the electric vehicle giant.

Tesla stock was down 1.5% midday at $174.75 while the


and the Nasdaq Composite were up 0.1% and 0.3%, respectively.

Write to Al Root at [email protected]